EU Debates Aid Cuts to Egypt

LONDON —
The European Union is debating whether to cut aid to Egypt following a week of violence that has left nearly 900 people dead. Senior diplomats were in Brussels Monday to discuss the European response but analysts say the outcome could be limited.

The diplomatic meeting in Brussels Monday was a step towards coordinating a European response to Egypt’s bloodshed. On Wednesday, EU foreign ministers are to hold an emergency meeting. No specific proposals have yet been made, but analysts say suspending Europe’s aid program is an option, as is halting all arms shipments to Egypt.

Last year the European Union pledged nearly $7 billion in aid and loans to Egypt.

Shashank Joshi is an Egypt analyst at the Royal United Services Institute research group in London. He said cutting European aid will not be a huge game changer.

“Simply cutting off aid probably wouldn't be enough and I think one way to apply serious pressure on the Egyptian authorities to cease their campaign of oppression and to force some kind of political accommodation would probably be more robust sanctions” he said.

EU has trade leverage with Egypt

According to Egypt's statistics office, European countries are its biggest trading partner. In 2011 the trade volume reached over $30 billion.

Europe also exports military equipment to Egypt. In the first quarter of this year, Britain approved licenses for about $70 million in military equipment, the bulk for military helicopters. Although some licenses have since been revoked, campaigners are urging Britain to halt all its arms exports to Egypt.

In the United States, for the fiscal year that begins in October, President Barack Obama has requested $1.3 billion in military aid to Egypt.

Joshi said U.S. cuts could have a much more important impact inside Egypt - but he said the U.S. is unlikely to follow in Europe’s footsteps.

"I think the Americans really are not paying much attention to what the Europeans are doing or what anybody else is doing. What they are concerned about is, will this really help or will we lose important influence with the generals?”

On Monday Saudi Arabia said Arab and Islamic countries will support Egypt if Western nations do cut their aid.

The Egyptian army ousted President Mohamed Morsi in early July. Within days, three Gulf Arab states pledged a total of about $12 billion to support the new leadership.

Western aid will not be Egypt’s biggest concern. But its economy is a major worry said Joshi.

“The effect of any aid cut-off is dwarfed by the broader impact of political unrest on the economy, which is already completely shredded over three years since Mubarak's fall, made worse during Morsi's period of government. And now attacks in key public cities, in tourist towns in the Sinai, means that tourist numbers are drastically falling off.”

Europeans make up about 70 percent of Egypt’s tourist industry. But Germany and others are warning their citizens against unnecessary travel there.

If those travel warnings stay in place it will have a major impact on the Egyptian economy, said Joshi.

Britons lining up for a flight from Heathrow airport on Monday said they were not put off by the recent violence. One man interviewed at the airport, who declined to give his name, said he had visited Egypt during previous periods of unrest and that his Red Sea resort had not been affected by the unrest.

According to Egyptian government statistics from 2010 tourism created either direct or indirect employment to one in eight Egyptians.